Key Points AppLovin was added to the S&P 500 in September. The company is expanding beyond its gaming niche, which is something investors should pay attention to. Its Axon 2.0 software has much higher profit margins than its older offerings. 10 stocks we like better than AppLovin › Advertising-technology (adtech) company AppLovin (NASDAQ: APP) launched its Axon 2.0 software in early 2023. That upgraded software, which has artificial intelligence aspects, has propelled the business ahead and lifte ...

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the digital advertising sub-sector in the Americas, specifically analyzing the Q3 2025 earnings season and making stock recommendations for companies within this industry [1][2]. Company Ratings and Price Targets - **MAX**: Downgraded from Buy to Neutral with a 12-month price target of $12.00 (previously $14.50) [1] - **IBTA**: Downgraded from Neutral to Sell with a 12-month price target of $26 (previously $30) [1] - **Unity (U)**: Initiated coverage with a Neutral rating and a 12-month price target of $38 (previously $32.50) [1][2]. - **Alphabet (GOOGL)**: Maintained Buy rating, raised price target to $288 from $234 [50]. - **Meta Platforms (META)**: Maintained Buy rating, raised price target to $870 from $830 [50]. - **Pinterest (PINS)**: Maintained Buy rating with a price target of $43 [50]. - **Opera (OPRA)**: Maintained Buy rating with a price target of $24.50 [50]. - **AppLovin (APP)**: Neutral rating with a price target of $630 [50]. - **Ibotta (IBTA)**: Downgraded to Sell with a price target of $26 [50]. Core Industry Insights - **Performance Trends**: Sustained momentum in performance-oriented budgets, particularly in direct response channels, was noted throughout Q3, with strong performance in July and August [2]. - **Brand Advertising**: Continued headwinds from a weaker brand advertising environment, especially from large advertisers, but easing revenue headwinds were observed in September, potentially improving Q4 [2]. - **Experimental Budgets**: Volatility in experimental budgets remains, with smaller platforms experiencing stalled or downside volatility [2]. - **Programmatic Platforms**: The value of programmatic platforms like Meta's Advantage+ and Alphabet's Performance Max continues to grow, attracting more industry budgets [2]. Industry Vertical Performance - **Retail & eCommerce**: Advertisers are deploying marketing dollars against stable end demand trends, particularly in less discretionary verticals [3]. - **Online Travel**: Normalizing around mid to high single-digit growth in 2H 2025, with marketing budgets adjusting accordingly [5]. - **Automotive**: Stable spending aligned with usual seasonality in Q3 [5]. - **Consumer Packaged Goods (CPG)**: Mixed trends with stable marketing and the rise of emerging brands [5]. Key Themes and Risks - **AI and Automation**: Increasing adoption of AI-driven programmatic systems is a significant theme, with potential impacts on advertising budget trends [5][6]. - **Direct Response vs. Brand Advertising**: Direct response spending remains resilient, while brand advertising is more volatile and subject to cuts during economic downturns [16]. - **User Engagement**: User growth and engagement trends are stable to rising, particularly in international markets, with short-form video driving engagement [16][30]. Pricing Trends - Q3 pricing trends across the digital advertising landscape showed slight growth year-over-year, with average CPMs for Meta's platforms experiencing a decrease of approximately 4% quarter-over-quarter but an increase of 3% year-over-year [20][25]. Conclusion - The digital advertising sector is experiencing a mix of challenges and opportunities, with a focus on performance-oriented budgets and the impact of AI on advertising strategies. Companies like GOOGL and META are positioned positively, while others face varying degrees of risk and opportunity based on their exposure to different advertising verticals and market dynamics [7][50].

Industry Overview - The Technology Services industry ranks within the top 24% of Zacks Ranked Industries and is expected to outperform the market over the next three to six months, having rallied 32.9% year to date [1] - The industry is mature with strong demand for services, and this momentum is likely to continue into the fourth quarter of 2025 [1][3] Market Trends - The global shift toward digitization is creating opportunities in markets such as 5G, blockchain, and artificial intelligence (AI) [3] - Companies are rapidly adopting generative AI, machine learning (ML), blockchain, and data science to gain competitive advantages [3] - There is robust demand for multi-cloud-enabled software solutions as businesses transition from legacy platforms to modern cloud-based infrastructure [3] Company Highlights AppLovin Corp. (APP) - AppLovin is a leading technology platform for mobile app developers, enhancing marketing and monetization efforts [7][8] - The Axon 2.0 AI engine has significantly boosted ad performance, leading to a $10 billion annual run rate in ad spend [9] - AppLovin targets a 20-30% year-over-year growth rate, primarily driven by its gaming segment and AI-driven ad monetization [11] - Expected revenue and earnings growth rates for the current quarter are 15.2% and 63.6%, respectively [12] Skillsoft Corp. (SKIL) - Skillsoft provides digital learning and talent solutions, focusing on a learner-centric approach [13] - Expected revenue and earnings growth rates for the next quarter are -2% and -53.1%, respectively, but earnings estimates have improved over 100% in the last 30 days [14] Acuity Inc. (AYI) - Acuity manufactures lighting fixtures and related components, with a focus on energy efficiency and smart building solutions [15][17] - Expected revenue and earnings growth rates for the current quarter are 19.5% and 12.3%, respectively [17] Byrna Technologies Inc. (BYRN) - Byrna develops non-lethal technology products for personal and professional security [18] - Expected revenue and earnings growth rates for the current quarter are 21.3% and -23.5%, respectively [19] MediaAlpha Inc. (MAX) - MediaAlpha specializes in programmatic technology platforms for vertical search and metasearch [20] - Expected revenue and earnings growth rates for the current quarter are -8.1% and over 100%, respectively [20]

Core Insights - The digital and AI landscape is evolving, with expectations for e-commerce growth projected at approximately $1.6 billion for the upcoming year [1] - The trajectory of app-based e-commerce is anticipated to mirror the rapid growth seen with TikTok, which escalated from $1 billion to $9 billion in revenue [2] - The launch of self-service platforms and advancements in AI, particularly in mobile gaming, are expected to enhance advertising effectiveness and consumer engagement [3][4] Company Insights - Mobile gaming companies like Applovin, Roblox, and Unity are considered to be among the most valuable in the market, with Applovin's market cap around $200 billion compared to Unity's $16 billion [5] - Applovin's strategic focus on rolling out Axon 2.0% has positioned it favorably in the market, capturing nearly half of the mobile gaming advertising spend, estimated at $15 billion [7] - Unity is in the early stages of launching its marketing platform, Vector, which is expected to significantly impact its market position once fully deployed [6] Market Dynamics - The competitive landscape is shifting rapidly, with companies needing to adapt quickly to changes in market conditions and consumer preferences [6] - The disparity in market capitalization between Unity and Applovin highlights the importance of timely product launches and strategic acquisitions in the tech space [7] - The expansion into e-commerce represents a significant growth opportunity for mobile gaming companies, further diversifying their revenue streams [8]

Core Insights - Wall Street is increasingly recognizing AppLovin as a significant player in the AI sector, alongside traditional chipmakers and cloud giants [1] Group 1: AppLovin's AI Strategy - AppLovin is leveraging AI to enhance digital advertising by integrating advertising technologies, gaming, and data [2] - The Axon 2.0 optimization engine, developed with insights from over 1 billion users, is a key driver for improving mobile ad performance and targeting [4] - Axon 2.0 has achieved a 50% to 60% penetration in the mobile game advertising market since its launch two years ago, indicating strong market acceptance [5] Group 2: E-commerce and Growth Potential - Axon 2.0 is expanding into e-commerce advertising, showing early success in driving conversions in categories like beauty and retail, with a run rate nearing $1 billion in Q1 [6] - Despite its current low penetration, there is significant growth potential for Axon 2.0, especially with the launch of a new app in the Shopify App Store to facilitate merchant connections [7] Group 3: Tools and Automation - The introduction of Axon Ads Manager allows advertisers to manage their activities directly, enhancing automation and workflow efficiency [8] - This tool supports automatically generated ads and integrates with third-party attribution partners, improving visibility into ad performance [9] - A global launch of Axon Ads Manager is planned for the first half of 2026, following a referral-based rollout starting after October 1 [9] Group 4: Market Outlook - AppLovin's non-gaming adtech business is projected to experience significant growth in the coming years, driven by the increasing ad supply on the MAX mediation platform [10]

Core Insights - Growth stocks, particularly in the tech sector, continue to lead the market, with several companies showing significant revenue growth of 25% or more, making them attractive investment opportunities this year Company Summaries Palantir Technologies - Palantir Technologies has experienced a remarkable stock increase of over 135% in 2025 through September 29, following a 340% surge last year [2] - The company has transitioned from being primarily a government contractor to a leading AI platform provider, with its Artificial Intelligence Platform (AIP) helping businesses deploy AI effectively [3] - Palantir's revenue has accelerated for eight consecutive quarters, with a 48% year-over-year increase last quarter, reaching $1 billion, and U.S. commercial revenue growing by 93% [4] - The company boasts a strong 128% net dollar retention rate, indicating existing customers are expanding their usage [4] - With AI still in its early stages, Palantir has significant growth potential ahead [5] AppLovin - AppLovin has transformed from a gaming app maker to a leader in AI adtech, driven by its Axon 2.0 AI adtech engine, which optimizes ad placements in real-time [6] - The company reported a 77% year-over-year revenue increase last quarter, reaching $1.26 billion, with adjusted EBITDA nearly doubling to $1 billion [6] - AppLovin is expanding its AI adtech engine into e-commerce and broader web advertising, indicating a larger market opportunity [7] - The launch of a self-serve ad manager aims to attract more advertisers and expand internationally, further driving revenue growth [8] - Despite a nearly 450% stock increase over the past year, AppLovin continues to demonstrate strong revenue growth and operational leverage [9] GitLab - GitLab has seen consistent revenue growth between 25% and 35% for eight consecutive quarters, with a 29% increase last quarter to $236 million and a dollar-based net retention rate of 121% [10] - Originally a DevSecOps platform, GitLab has evolved into a comprehensive software development lifecycle solution, enhancing developer efficiency [11] - The introduction of the Duo AI agent automates repetitive tasks, allowing developers to focus more on coding, addressing the concern that AI might reduce the need for coders [12] - GitLab's shift to a hybrid seat-plus-usage pricing model positions the company for growth as demand scales, while also providing protection against potential declines in coding teams [13]

Core Viewpoint - AppLovin's stock is experiencing significant upward momentum, driven by positive analyst ratings and expectations for growth in its advertising platform, particularly with the launch of Axon 2.0 [1][3]. Group 1: Analyst Ratings and Price Targets - Piper Sandler raised its price target for AppLovin from 500 to 740, while UBS increased its target from 540 to 810, both maintaining buy ratings [1]. - UBS analyst Chris Kuntarich identified AppLovin as a "top pick" within his coverage [2]. Group 2: Stock Performance - AppLovin's stock rose over 3% to 662.41, reaching a record high of 670.19 earlier in the week [2]. - The stock is featured on multiple IBD lists, including IBD 50, Big Cap 20, Leaderboard, and Tech Leaders [4]. Group 3: Growth Initiatives - Analysts expect AppLovin to implement demand and supply expansion initiatives that could enhance the performance of its AI-powered advertising engine, Axon 2.0 [3]. - Piper Sandler's James Callahan expressed optimism about AppLovin's potential to become a leading player in the advertising sector, highlighting the upcoming soft launch of Axon Ads Manager [3].

Core Viewpoint - AppLovin Corporation is successfully expanding beyond gaming, with significant growth in non-gaming revenue driven by international expansion, referral program adoption, and seasonal advertising spend [1] Group 1: Revenue Forecasts - BTIG analysts raised their price forecast for AppLovin to $664 from $547, maintaining a Buy rating [1] - The brokerage forecasts fourth-quarter 2025 non-gaming revenue of $531 million, up from a prior estimate of $369 million [2] - For the full year 2026, non-gaming spending is projected to reach $2.58 billion, an increase from $2.13 billion previously, lifting total revenue and EBITDA forecasts to $8.19 billion and $6.84 billion, respectively [3] Group 2: Advertising and Market Position - Late August channel checks indicated about a 50% intra-quarter improvement in return on ad spend, with marketers scaling campaigns based on total returns [4] - AppLovin is positioned to expand into new verticals such as commerce, financial services, healthcare, and automotive, creating an incremental advertising opportunity of $245–$285 billion [5] Group 3: Market Share and Valuation - AppLovin accounts for about 4% of client spend, ranking behind only Meta and Alphabet, indicating strong performance and incrementality [6] - BTIG's valuation is based on a 32.5x multiple of the 2026 estimated software EBITDA, adjusted for -$1.6 billion in net cash, with bull and bear cases implying outcomes of $819 and $201, respectively [6] Group 4: Strategic Initiatives - AppLovin is recognized as a top pick due to improvements in Axon 2.0, deeper penetration into non-gaming categories, and the upcoming rollout of a self-serve dashboard [7]

Core Insights - AppLovin is set to join the S&P 500 on September 22, 2025, marking it as one of only 10 companies to be added this year [2] - The stock has experienced a remarkable 541% increase over the past year and a 652% gain since its IPO in early 2021, significantly outperforming the S&P 500's 55% increase during the same period [2] - The company's revenue has surged by 510% and net income has skyrocketed by 3,490% in less than five years, indicating strong fundamentals [2] Company Performance - In Q2, AppLovin reported revenue of $1.26 billion, a 77% year-over-year increase, and earnings per share (EPS) of $2.39, up 169% [7] - The results exceeded Wall Street's expectations, with analysts predicting revenue of $1.22 billion and EPS of $1.96 [8] - The company forecasts Q3 revenue of $1.33 billion, surpassing analysts' expectations of $1.31 billion [8] Financial Metrics - Operating cash flow reached $772 million, a 70% increase, while free cash flow was $768 million, up 72% [9] - AppLovin's net revenue per installation increased by 70%, and the number of installations grew by 8% [7] Market Sentiment - Wall Street analysts remain bullish on AppLovin, with 76% rating it a buy or strong buy [10] - Analyst Rob Sanderson from Loop Capital has a buy rating with a price target of $650, suggesting a potential upside of 33% [11] - The stock is currently priced at 36 times next year's expected earnings and 23 times next year's sales, which is considered reasonable given its growth trajectory [12] Industry Position - AppLovin operates in the adtech sector, providing a SaaS platform that aids app developers in marketing and monetizing their applications [5] - The company is expanding its offerings to include new adtech solutions tailored for e-commerce platforms and leveraging AI technology with its Axon 2.0 platform [6]

Company Overview - AppLovin Corporation (NASDAQ:APP) saw a stock increase of nearly 12% after being added to the S&P 500 index, which typically attracts passive funds and institutional investors [2] - The stock has risen nearly 60% year-to-date, indicating growing confidence in its business model focused on mobile app developers [2] Financial Performance - In Q2, AppLovin's revenues grew by 77% year-over-year to $1.26 billion, with earnings per share at $2.39, a 169% increase compared to the previous year, surpassing consensus estimates of $1.96 [3] - Net income more than doubled to $819.5 million, showcasing strong financial growth [3] - Total revenues increased by 48% over the last year to $5.3 billion, with operating income reaching $3 billion and an operating margin of 55.6% [8] Competitive Edge - AppLovin's competitive advantage lies in its Axon 2.0 machine learning algorithm, which optimizes ad delivery specifically for mobile app advertising [4] - The company has divested its gaming app division to focus more on ad technology, while also exploring e-commerce, connected TV, and non-gaming applications [4][5] Market Position and Trends - The digital advertising sector is rapidly evolving, with AI-enhanced platforms improving ad targeting and efficiency, positioning AppLovin to leverage these trends [5] - The company is diversifying its revenue streams through initiatives in e-commerce advertisements and self-serve ad platforms [5] Valuation and Financial Health - AppLovin's stock is trading at 76 times earnings and 65 times free cash flow, significantly above market averages, indicating high valuation risks [7] - Despite this, the company's strong growth, margins, and balance sheet justify its high valuation, with a healthy cash-to-assets ratio of 20% and debt of $3.5 billion against a market capitalization of $185 billion [8]